In last week’s article about the NASDAQ 100, I concluded based on the Elliott Wave Principle (EWP) and technical analysis:
“The bulls are mere inches [21p] away from a significant top, as the NDX swiftly dropped to the anticipated 12200 levels based on simple EWP-based wave-C = wave-A symmetry. If today’s low can hold going forward, the NDX can start moving back to its ultimate bull market target in the low 14000s.”
One week later and that low is still holding, and thus the bulls still have, at least, one more shot left at another rally to new all-time highs. See blue arrow in figure 1 below.
The technical indicators have turned back up with this week’s rally, and the index has also been able to claw itself back above its 10-day simple moving average. Resistance is now at the 20-day and 50-day SMA. Thus, the bulls have their work cut out to re-establish a new uptrend because a close below the 10-day SMA targets 12400-500 once again.
Figure 1. NDX100 daily candlestick chart with EWP count and technical indicators.
The next item on the bulls’ agenda will be a daily close back above yesterday’s high, which will propel the index back above 20-day and 50-day SMAs as well. They can then act as support and help sustain the rally. If the bulls fumble the ball and allow the index to close below last week’s low, which they already almost did on Monday, then the probabilities of a significant top and multi-year bear market have markedly increased.
Please keep in mind that while this index was down almost 12% from its all-time high on Monday, the Dow Jones Industrial Average was making new ATHs. Such marked divergence between two major indexes is often not a healthy sign as there is a shift away from technology to industrial on Wall Street.
However, like it or not, technology is here to stay and a leading economic indicator. In contrast, industrial production has been of lesser importance for decades, especially in the United States. There is no reason to believe this trend has all of a sudden changed. Thus, as the financial markets are potentially starting to give us warning signs about what lies ahead further down the road, for now, my mantra remains “as long as NDX 12208 holds, the index can move higher to new all-time highs: the low to mid-14000s. Once reached, it will be prudent to become defensive once again.”